What AT&T, DirecTV deal means for you

How Internet access and pay-TV in the U.S. could become a three-horse race

If AT&T’s acquisition of DirecTV is approved by regulators and Time Warner Cable’s deal with Comcast goes through, roughly half of U.S. households could end up getting their Internet access and television service from two giant companies.

On Sunday, AT&T Inc.
T, -0.97%
announced that it will buy satellite-television provider DirecTV
DTV, -0.83%
for $67.1 billion in a stock-and-cash deal, including the latter’s debt. The new, combined company will offer consumers bundles that include video, high-speed broadband and mobile services, AT&T said in a statement.

“This is just the beginning of the next wave of industry consolidation of television and Internet,” says technology consultant Jeff Kagan.

What AT&T-DirectTV deal means for you

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AT&T's move to buy DirecTV could boost AT&T's financials but what will the impact on consumers be? MarketWatch's Quentin Fottrell joins the News Hub with Sara Murray. Photo: Getty Images.

Indeed, according to Dan Rayburn, a principal analyst with business consulting firm Frost & Sullivan: “If AT&T can convert DirecTV’s customers into high-speed Internet subscribers, they could have 25% of all pay TV subscribers and then two companies would control 55% to 60% of all Internet subscriptions in the U.S.”

And nearly 50% of U.S. households would get their television service from one of these merged companies if both deals go through, says Michael Hodel, equity strategist at Morningstar.

As bigger companies bundle services, Kagan says cable bills will continue to climb. The average bill for cable hovers at around $90 a month and will hit $200 a month in 2020, according to The NPD Group. The cost of cable television doubles roughly every 10 years, Kagan says.

Fewer cable companies would mean fewer choices for consumers. “The whole idea of a la carte television and Internet is never going to happen,” Rayburn says. And consolidation is unlikely to stop the rise in cable bills every year. “The industry needs more competition, not more mergers,” says John Bergmayer, senior staff attorney at consumer-advocacy group Public Knowledge.

But others say customers could get more bang for their buck. “The new (AT&T/DirecTV) company would sell bundled TV and telephone service, reducing costs and hassles,” says William Rinehart, director of technology and innovation policy at the American Action Forum, a center-right policy institute.

Ultimately, consumers will have fewer choices when it comes to Internet and TV services. Two giant mergers could also give the Federal Communications Commission a “bargaining chip” to push Internet service providers and cable companies to preserve net neutrality, Hodel adds. “This (merger) activity is negative for consumers, but adequate regulatory oversight can offset this,” Hodel says. Net neutrality suffered a blow last week, however, when the FCC voted to propose “net neutrality” rules that could allow Internet service providers to charge content providers like Netflix
NFLX, -1.39%
, YouTube
GOOG, -0.73%
and Hulu for faster and higher delivery of their traffic to users.

Here’s a tally of their subscriptions: AT&T has around 11.3 million broadband connections: 5.7 million for U-verse pay-TV service and the rest for high-speed Internet access; DirecTV has more than 20 million pay-TV customers in the U.S. (and over 18 million customers in Latin America); DirecTV doesn’t offer an Internet service. Time Warner Cable
TWC, +0.41%
has approximately 11 million video subscribers and Comcast
CMCSA, -0.25%
has 22.6 million video customers. Because many consumers purchase cable “bundles,” most of the Time Warner and Comcast video subscribers also are Internet subscribers.

“We don’t have a choice with pay TV providers. People can either choose a low bundle, middle bundle or high bundle,” Rayburn says. Despite having nearly 200 channels to choose from, the average American watches only 17, according to Nielsen. That’s still a good deal for most people, he says. If you only paid $3 a month for each of those 17 channels, the monthly bill would be $51. “Consumers love to complain, but if they really hated their cable and Internet access so much they would cut the cord,” Rayburn says. Are you ready to cut the cord? Try MarketWatch’s calculator

Analysts see more consolidation in the industry after AT&T’s announcement, and expect Verizon Communications Inc.
VZ, -1.00%
to move next. “A Verizon bid for Dish Network Corp.
DISH, -1.02%
would seem to be the most logical follow-on agreement,” Hodel says. That would further reduce consumer choice, Rayburn says. “It will turn into a three-horse race for Internet access in the U.S.,” he adds. “Three companies would control around 75% of all Internet access in the U.S.” (A spokesman for Verizon declined to comment.)

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